The U.S. Department of Labor published on Thursday its proposal to overhaul the regulations defining overtime exemptions for white-collar employees under the Fair Labor Standards Act.

The DOL calls the measure a long-needed modernization of the 50-year-old rules. The benefits, according to department officials, include a boost to small businesses as well as overtime pay for an additional 1.3 million low-wage workers.

“Our proposal will strengthen overtime for the most vulnerable low-wage workers and allow for stronger Department of Labor enforcement of this important worker protection,” said Secretary of Labor Elaine L. Chao.

Among other things, the Department’s proposed regulations would raise the salary threshold—below which workers would automatically qualify for overtime—from $155 a week to $425 a week. This increase of $270 a week would be the largest since Congress passed the FLSA in 1938 and the first increase since 1975. The DOL estimates it would increase the wages of 1.3 million lower-income workers and reduce the number of low-wage salaried workers currently being denied overtime pay.

Other proposed changes include revising job duties required to qualify for the exemption to "better correspond to 21st century workplace realities." The DOL notes that the current regulations, written in 1949, mention job classifications that no longer exist, such as key punch operators, straw bosses, leg men and gang leaders. "Clarifying which job duties qualify for overtime pay will help workers and employers easily determine overtime entitlement for millions of workers whose status is currently unclear," according to the deparatment.

“Updating these regulations is long overdue—the types of jobs people do and the skills they need have changed, but the regulations have not,” said Wage and Hour Administrator Tammy D. McCutchen. “By recognizing the professional status of skilled employees, the proposed regulation will provide them a guaranteed salary and flexible hours.”

Here are some details behind the proposal:

Minimum salary level increased. Under current rules, an employee earning only $155 a week can qualify as a “white collar” employee not entitled to overtime pay. The Department’s proposal would raise this minimum salary to $425 a week and guarantee overtime to:

• An employee working 50 hours per week managing a restaurant for $15,600 per year.
  
  
• A worker putting in 60 hours a week managing a department store for $18,000 per year.
  
  
• An employee working 42 hours a week supervising a machine shop for $17,000 per year.

Duties tests to rely on 'primary duty.' The proposed rule retains the current “short test” reliance on an employee’s primary duty. But it would eliminate the long-inactive “long test” rule restricting exempt employees from devoting more than 20 percent of time in a workweek performing non-exempt duties.

• Executive duties. The proposed executive duties test has three requirements: managing the enterprise; directing the work of two or more employees; and having authority to hire or fire (or such recommendations are given particular weight).
  
  
• Administrative duties. The proposal would replace the “discretion and independent judgment” test, which has been the subject of confusion and litigation, with a new test that employees must hold a “position of responsibility.”
  
  
• Professional duties. The proposal recognizes as exempt “learned professionals” certain employees who gain equivalent knowledge and skills through a combination of job experience, military training, attending a technical school or attending community college.

The DOL further proposes to allow deductions from the salary of exempt employees for full-day absences taken for disciplinary reasons, such as sexual harassment or workplace violence. Currently, only hourly workers’ wages are subject to such deductions. The proposal retains the “salary basis” rule prohibiting deductions from exempt salary for partial-day absences.

The impact. According to the DOL, the proposed changes will bring these results:

• Increasing the minimum salary level will automatically guarantee overtime to 1.3 million additional low-wage workers.
  
  
• Updating the duties tests will make entitlement to overtime more certain for 10.7 million workers.
  
  
• Reducing regulatory red tape and litigation costs will free up resources and stimulate economic growth.
  
  
• Bringing the rules into the 21st century and clarifying the outdated regulatory language will help employees understand their rights and ensure they receive their hard-earned pay. Employers will be better able to understand their obligations and comply with the law.

Links

U.S. Department of Labor

• The rule as expected to be published in the Federal Register
• Current rules compared to proposed ones